Why Haven't Nearly Half of Mortgage Borrowers Refinanced?

Mortgage interest rates declined steadily from 2009 through 2012 creating an unprecedented opportunity for mortgage borrowers to lower their monthly mortgage payments by refinancing their loans to a lower mortgage rate.  Despite potentially significant savings, many eligible mortgage borrowers have not refinanced.  According to the Fannie Mae National Housing Survey, approximately 40 to 50 percent of mortgage borrowers say that they have not refinanced the mortgage on their current home.  Additional research from the Federal Reserve in 2001 shows similar results. ¹ 

Fannie Mae’s Economic & Strategic Research Group conducted two separate analyses to understand what motivates borrowers to refinance their mortgage and why so many do not refinance.  First, we examined what factors were associated with having refinanced in the past.  Second, we studied the factors that motivate one’s intent to refinance over the next 12 months.  The analyses are based on Fannie Mae’s National Housing Survey data collected over a three-month period from January 2013 to March 2013. 

Our study shows that “life cycle” factors, primarily years of homeownership and certain demographic factors, were reported by borrowers to be the dominant factors associated with their past refinancing behavior.  In comparison, borrowers’ financial attitudes, grouped as “risk mitigation” factors, are the primary factors driving one’s likelihood to refinance in the future.  The chart below presents the findings related to both analyses. 

Key Factors Associated with Past Refinance Behavior and Future Intent To Refinance

The top life cycle factor associated with past refinancing is the number of years that borrowers have owned their homes.  Results show that the majority of homeowners surveyed refinanced after owning their homes between 6 and 15 years.  Marriage and higher education levels also contributed to homeowners’ past refinancing behavior.

Risk mitigation factors, which are the primary drivers of future refinancing intent, include the following borrower attitudes: stress about their ability to make debt payments, unsuccessful past refinance attempts, and expectations that their financial situation will get better in the next 12 months.   

The important role that life cycle factors play in past refinancing behavior suggest that a borrower’s financial experience and literacy, possibly gained through homeownership length and education, may encourage mortgage refinancing.  Findings suggest that a better awareness of one’s financial situation could encourage consumers to consider refinancing and to take action.  In addition, resources and tools that help build financial literacy and awareness could lead to higher rates of refinancing.

Our National Housing Survey research also shows that there may be other factors (not captured in the above analyses) that have an impact on why people do not refinance.  For example, the considerations of “not enough savings” and “high closing costs” are top refinancing barriers cited in the study.  Situational factors such as the relative size of the original and remaining mortgage principal and the number of years expected to remain in the house could affect borrowers’ assessment of refinance benefits.  Further research into the situational factors that may impact borrowers’ decision making as well as borrowers’ financial literacy and awareness is needed to provide deeper insights into the issues that influence refinancing behavior.

To learn more about our study on what motivates mortgage borrowers to refinance, including the research methodology and detailed findings, read our Fannie Mae National Housing Survey Topic Analysis and data summary.

¹Federal Reserve analysis from 2001 to 2002 shows similar findings that approximately half of the homeowners with mortgages refinanced at least once after buying their homes (Glenn Canner, Karen Dyman and Wayne Passmore, “Mortgage Refinancing in 2001 and early 2002,” Federal Reserve Bulletin, December 2012; https://www.federalreserve.gov/pubs/bulletin/2002/1202lead.pdf)

Li-Ning Huang, Ph.D.
Senior Manager, Business Strategy
Economic & Strategic Research

February 6, 2014

The author thanks Steve Deggendorf, Doug Duncan, Tom Seidenstein, Pat Simmons, and Orawin Velz for valuable comments in the creation of this commentary. Of course, all errors and omissions remain the responsibility of the author.

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